Dealer Lab: Profits Continue Amid Revenue Drops

Publish Date:

Jan 4, 2010

By Joe Delmont

Editor’s note: The Dealer Lab project is a joint effort between Dealernews and PowerHouse Dealer Services, a consulting firm run by former dealer Bill Shenk. In July, he took over management of Florida Motorsports, a two-store network that wasn’t in good shape: It lost nearly $1 million in 2008. Shenk will share data as he works to bring the business back to profitability. Our transparent reports will cover these efforts, good, bad or ugly.

Following a successful October, our Dealer Lab dealership earned $5,290 in November even though revenue declined in all five profit centers from the previous month. However, there were four fewer business days in November than in October: 19 days compared to 23 days. Total revenue in the Naples, Fla., store was $653,786 in November, off nearly $85,000 or 12 percent from the $738,661 posted in October. Unfortunately, we can’t compare November’s performance with that of November 2008 because the accounting systems and management’s treatment of revenues and expenses were different.

Gross profit in November was $170,291, off $26,000 or 13 percent from the $196,456 reported in the previous month. Cost of sales in November was down by about $60,000, however, and gross profit as a percentage of sales was about even at 26 percent. There were 78 units sold in November, compared to the 82 units sold in October. F&I revenue was off $13,147 in November compared to October because the sales process wasn’t efficient — primarily because of illness of F&I sales personnel. The F&I profit contribution dropped from $32,660 in October to $22,718 in November.

P&A performed poorly in November, generating only $19,394 in gross profit, down from $24,189 in October and only about half of what it should be based on the dealership’s performance in service and sales. “We left $20,000 in gross profit on the table in P&A,” Shenk notes, “which would have created another $7,000 in payroll for the P&A team and would have dropped $13,000 more to the bottom line.”

Gross profit per vehicle sold was up, going from $905 in October to $1,014. But F&I suffered and only produced $385 PVS. At $300 PVS left on the table times the 78 major units retailed, it would be $23,400 more gross for the month of November, creating more than $13,000 on the bottom line. Service performed well at $776 per vehicle sold in labor sales, but is still around $4,000 over budget on payroll.

Unit inventory improved in the last five months, going from about $4 million to almost half that in November. Flooring costs also are dropping, but they still remain too high based on sales volume. At a current Top Gun average of $140 per vehicle sold, Shenk points out, the dealership is still $75 high per vehicle sold, or $5,000 high on flooring. “With all cylinders firing, we could have put as much as $35,000 more to the bottom line even in these tough times,” Shenk says. “That would be a 6 percent net profit before tax and depreciation.”

VICTORY SOLUTIONS
Shenk is working with Jose Juarez, owner of Victory Solutions, a six-year-old Florida company that specializes in developing follow-up calling and telephone marketing programs for dealers. Victory has 62 dealers nationwide that average about 1,000 unit sales annually. Some might call Victory’s work customer satisfaction surveys, but Juarez’s team goes beyond that, calling nonbuyers as well. “If I were an owner,” Juarez says, “I would want to know why a visitor to the dealership didn’t buy.” He adds that customers are more apt to tell an outsider why they didn’t buy the day of a visit, and what else would be required to secure a sale.

A few things Victory did for the store in November:

Followed up on the customers entered into the dealership’s Victory Guest Log. Interviewed 51 percent of them. Thirty-one percent of the customers who left the store without making a purchase told Victory they wanted to purchase within the next 30 days.

Followed up with all customers who were entered into the log as phone callers looking for a product. Completed interviews with 46 percent of these 26 prospects. Three eventually made a purchase.

Followed up on customers who purchased within the past 30 days. Interviewed 52 percent of them. Almost all contacted said they would recommend the dealership and would buy again. Two said no to both of the questions, and this information was sent over to the managers and owner as an upset/hot customer. All hot leads and upset customers are e-mailed to the owner and managers; Victory Solutions also calls the managers when it feels there is a need for immediate attention.

Followed up on all service customers 24 hours after an R.O. is entered into Lightspeed and uploaded to Victory. Interviewed 56 percent of them. Ninety-one percent said they’d recommend the service department; 9 percent said they weren’t satisfied with the service department; 15 percent requested a call from the service manager.

Overall service CSI score (on a scale of 1 to 10, 1 being poor, 10 excellent) went from 8.9 in the first three months (June, July, August) to 9.2 for September, October and November. Of the service customers contacted in June, July and August, 20 percent said they would not recommend the service depart. In six months, that number was cut in half.

Victory will soon be calling previous customers who purchased in the past three years and getting them to return to the store to trade in the old bike for a new one. Next month: the first six months.